Life insurance policy maturity proceeds exempt under Section 10(10D) after transfer from keyman to ordinary policy

The ITAT Delhi held that proceeds from a matured life insurance policy were exempt under Section 10(10D) of the Income Tax Act. The AO had treated the amount as taxable under Section 28(vi), arguing it remained a keyman insurance policy. However, the assessee successfully contended that when the proprietorship concern dissolved in 2008, the policy was transferred to the individual assessee after paying surrender value, changing its character from keyman to ordinary policy. The tribunal ruled that policy assignment leads to conversion and character change, making the maturity proceeds exempt. The addition was deleted and the assessee's appeal was allowed.

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Issues involved:
The judgment involves the taxability of sums received on maturity of a life insurance policy under section 28(vi) of the Income Tax Act, 1961.

Issue 1:
The appellant challenged the addition made under section 28(vi) of the Act, claiming that the sums received on surrender of the life insurance policy were exempt under section 10(10D) and not taxable as Keyman Insurance Policy.

The Commissioner of Income Tax (Appeals) upheld the addition, stating that the policy was not exempt under section 10(10D) and confirmed the taxability under section 28(vi).

The appellant argued that the policy was converted into an ordinary policy after assignment, relying on relevant case laws and legislative intent.

The Tribunal found merit in the appellant's contention, following the decision of the Hon'ble Delhi High Court and held that the authorities were not justified in denying the exemption. The addition was directed to be deleted, and the appeal of the assessee was allowed.

Issue 2:
The appellant contended that the addition could be made under capital gains, but the Tribunal found the taxability under section 28(vi) to be incorrect and directed the deletion of the addition. The appeal was allowed.

Judgment Summary:
The Appellate Tribunal ITAT Delhi addressed the challenge to the correctness of the order passed by the Ld. CIT(A), NFAC, Delhi regarding the taxability of sums received on maturity of a life insurance policy under section 28(vi) of the Income Tax Act, 1961. The appellant argued for exemption under section 10(10D) and disputed the classification as a Keyman Insurance Policy.

The Tribunal, considering relevant case laws and legislative intent, found in favor of the appellant, holding that the policy was converted into an ordinary policy after assignment, and the authorities were not justified in denying the exemption. The addition was directed to be deleted, and the appeal was allowed.

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